Mr.
Willis: I am happy with
that.
Q
204Simon
Hughes (North Southwark and Bermondsey) (LD): Welcome. It
is good to see you and thank you, Jonathan, for your submission. May I
first probe the question of the people involved, other than pensioners,
before addressing methods of ensuring that people get the best or
fairest deal? At the moment, we have systems that generally support
people who get a benefit from the state. They are either pensioners,
over pensionable age or they qualify because of income support and so
on. Have you all thought through the categories that should be
included? We will need some precise answers to that first part of my
question. Secondly,
some people are entitled to benefits or entitlement, but they have to
claim them, which has always been a problem, because the benefit
take-up has never been anything like the number of people entitled. How
do you deal with
that? Finally,
are there people who are just under pensionable age but, for pride and
other reasons, do not claim benefits, are just above the limit and
should be eligible? People have talked about disability, cancer
patients and other categories. Will you help us as precisely as you can
as to the groups that we should include and
how? Jonathan
Stearn: Yes, we have done some work on that. The
issue that we have with fuel poverty is to try to get precision,
because we actually do not know the energy efficiency of every house in
the country. We do not have that information, so we are lacking a vital
bit of information to do this
properly.
Simon
Hughes: Except we know that 99 out of 100
houses are not energy
efficient. Jonathan
Stearn: Yes, we do. Whatever you do is going to be a
bit of a proxy. We also think that there is an issue with the
definition of fuel poverty. For example, if you have information that
looks at basic income, which leaves aside payments for housing
benefit—that never enters a person’s pocket at
all—you will find that 41 per cent. of lone parents come under
that classification of the fuel
poor. The
group that we particularly focused on was those eligible for cold
weather payments. Some 37 per cent. under those criteria are fuel poor.
It is not a bad proxy compared with the equivalent for households
receiving pension credit, which is 36 per cent. So we think that cold
weather payments are not a bad proxy. They pick up those who are income
poor, those on a pensioner premium and disability premium, and those
with disabled and young children, so we think they are not a bad proxy.
We would add those children of school age with parents who are on low
incomes and benefits. As a core, we think cold weather payments are not
a bad proxy to use.
Q
205Simon
Hughes: Just before Jenny comes in, you would say that the
starting point should be the current definition of those entitled to
cold weather payments but, Jonathan, you would add some other potential
categories.
Jonathan
Stearn: We would add people in households with
benefits for children of school age, because that is the one group not
included in the mix in relation to cold weather payments.
Jenny
Saunders: We have also looked at this carefully and
believe that the existing categories of households eligible for cold
weather payments are the target group for the main rebate scheme. I
take your point that there are a number of people who are not receiving
all the benefits to which they are entitled. There is still room for
the voluntary arrangements that companies have with other charities to
get to those people who have particular health problems—you
mentioned cancer—or other health-related issues that make them
more vulnerable and may not be picked up as easily in the system. If we
retain some of that flexibility within the mandated programme, we can
be more confident that through voluntary sector partnerships or
agreements with local authorities or other statutory bodies—such
as npower’s Health Through Warmth scheme—we might get to
people who are in need but outside the main state
system. Jonathan
Stearn: There are two points. On your point about
non-take-up of benefits, it is worth reminding ourselves about how much
is left—although I know it is not really—in the Treasury
coffers every year as a result of that. Billions of pounds are
unclaimed every year, which is worth remembering when we talk about how
much schemes like this might cost.
It is also
worth paying attention to the potential to encourage take-up by having
a mandated scheme. We know, for example, from Warm Front that people
who are eligible for but not claiming benefits to which they are
entitled come back to Warm Front having claimed those benefits. Warm
Front acts as an incentive to claiming benefits and the same could
happen with this, if we had a mandated scheme. It could be worth a lot
less than the benefits, but could act as a trigger in the same way that
Warm Front
has.
Q
206Simon
Hughes: My last question on this is, would you, as well
placed organisations, seek to work out those other categories that
might justifiably be entitled? For example, we have had submissions
from Macmillan—a fantastic organisation and we know what they
do—but cancer patients in their 40s or 50s cannot be the only
ones who are more vulnerable and need to be protected and who may still
carry on working part-time, or whatever. Given that we are to have a
secondary legislation round, would you be willing and able to come to a
common view with the charities? Because it would be far better to have
consensus rather than lots of negotiation and rather invidious
discrimination later on, when people with some conditions qualify and
others do
not. Jonathan
Stearn: The answer is yes. We at Consumer Focus have
been working directly with a range of charities, including Macmillan,
to come to common agreements on fuel poverty. For example, the drive on
energy efficiency was supported by Macmillan, Age Concern and other
organisations, all of which saw it as a key way forward. I am sure that
by working in coalition with that group we can come to common
agreement. Jenny
Saunders: Yes, and I would add that there will be
some categories that are difficult for anybody to identify as one
category. There will always be grey areas.
That is difficult, but we might allow those professionals some
discretion and perhaps have a discretionary pot for that kind of
activity. There is a problem if that still requires people to come
forward themselves or be referred in. The way in which it is outlined
in the Bill is much simpler. If people are going to get an automatic
rebate it just happens, it does not require lots of filling in of forms
or
applying. We
know the difficulty EDF had, for example. When it initially set up its
social tariff it was not sure, so it allocated groups of customers by
postcode, based on a matrix that it had worked out. It thought those
people were more likely to be in fuel poverty than other customers. It
has had to find proxies, and because of the definition of fuel poverty
we will still have to have those proxies that people work to. But there
is no doubt that people on pension credit are in severe financial
hardship, and they are vulnerable because of their age. They are a good
category of people for us to be
helping.
Q
207Simon
Hughes: Thank you. May we just go on to method of
supporting people? I have two questions. One is a specific question
that I would like you both to answer, and the other is about your
advice as to what methods will work. The specific question is whether
there should be an end to the right of companies to charge differently
depending on the means of payment. Should we simply say that it will be
the same charge whether you pay by cheque, online or through a
prepayment meter? It would be very simple and very fair. It does not
matter if you also buy gas from the same person you buy your
electricity from—that will not give you an advantage. If you are
buying electricity, however you pay, you pay the same rate. Do you
support a proposal that we have a single rate of payment for that
product, irrespective of method of
payment? The
wider question is: what is your advice as to the best way of giving
support? Is it that the lowest tariff should be what the company has to
offer to everybody in this category, and should that be part of a
package that reduces the tariffs from the 4,000 that there are at the
moment to a very limited number that the company is allowed to charge?
We could legislate and say that you can only have five tariffs, for
example, or we could tell Ofgem that that is what companies have to do.
I am concerned that we have a ridiculously complex system, and we
discriminate against people who pay by the old-fashioned methods by
which poor people pay. I want to end that. How do we get
that? Jenny
Saunders: I can start on that. I think that when we
were looking at the definition of social tariffs some time ago, it was
that it should be irrespective of the method of payment. I spotted your
amendment to that effect, and I think that that is something about
which we are very exercised. There had been an increasing differential
between the different methods—online, direct debit and
prepayment—and at the worst it was more than £500 between
the best and worst deals. It took us a lot of persuading of Ofgem for
it to intervene, because it felt that the competitive market was still
the right route, and that if people knew that if they switched between
companies they would get a better deal, they automatically would. We
saw, and the companies saw, people switching away to a worse deal. We
were told by EDF that 50 per cent. of people who switched away from
what it knew to be its cheapest tariff moved to a worse deal.
There is no
doubt that the current array of tariffs is very confusing and people
get into a muddle, and it is very difficult for advice agencies to know
what is going to be best for different customers. We did get into a big
tangle over this. It would be nice to have what you are proposing, but
I suspect that what we will be limited to is the European legislation,
which means that prices have to be cost-reflective now. So there will
be some differential. Having recognised that differential, whether you
can then use the social tariff to address that and—are you
following what I mean? I’m sorry it’s a bit muddled. We
have to simplify the tariffs and we have to simplify the advice that we
are giving out to
people.
Q
208Mr.
Willis: I am totally confused by your answer. I am sorry.
I am not being disingenuous. Are you saying to Simon Hughes that
European law would prevent it being stated in this Bill or in secondary
legislation that all companies must offer their lowest tariff available
as part of their response to the fuel
poor? Jenny
Saunders: No. Ofgem made it clear that within its
existing duties—these won’t change—they have
special duties for the care of vulnerable customers, so they can do
this.
Mr.
Willis: So we could have that on the face of the
Bill? Jenny
Saunders:
Yes.
Mr.
Willis: You said we couldn’t
earlier. Jenny
Saunders: As a general issue, we have to have
cost-reflective pricing. But we can tackle the disadvantage that that
might bring as well through this proposed legislation. The question is
how many people do we really want to help through this mechanism? There
are over 5 million households in fuel poverty; we cannot help all of
them through this. They can’t all get access to a social tariff
without that cost coming through into quite a large amount of money,
which will be passed on to all other consumers. It is a matter of being
careful as to how much these costs will amount to. I know that
you’ve done some work on that,
Jonathan.
The
Chairman: We are running into the danger that half of our
agenda will be lost. Can I ask Simon to focus on a final question and
could I also ask the witnesses to try to give us some concise
answers? Jonathan
Stearn: On the point about making charging the same,
the issue of cost-reflectivity is the one that Ofgem would raise.
Pricing generally has to be cost-reflective. We would have an issue
with what you actually mean by cost-reflectivity. As I said at the
beginning, there can be a £250 difference between what
you’d pay to the same supplier if you were paying through direct
debit online and what you would be paying through a prepayment meter
or, indeed, a quarterly bill. We have had a lot of impact on prepayment
meters and have managed to bring the charging of those down to levels
similar to quarterly payments, but there still can be a £250
difference between that and direct debit online. Certainly that is
detrimental to the groups we are concerned about here. We cannot just
say to people, “That’s the market place. You
haven’t got a computer. You haven’t got a bank account.
Well, tough.” We need to move
forward from that and have policies that recognise the detriment that
those consumers are facing. Yes, that means you can delve
into the issues of what cost-reflectivity is.
There
is an interesting example in Northern Ireland where semi-smart metering
was introduced. It meant that prepayment became very popular. The price
differences between that and any other cheaper forms of payment are
very small because there is investment. That is the issue behind
cost-reflectivity: what cost are you reflecting? If you don’t
invest in something then the costs of supplying it on a prepayment
meter will be very high. If you do invest then the costs over time can
go down a lot. That is why, to be honest, the issue of smart metering
is very important here. Again, we are really pleased. Energy Watch
argued for the introduction of smart metering for a long time so we are
really pleased that every home will have smart meters. But it is
absolutely essential that every home has the ability to have prepay as
part of their smart meter option for both gas and electricity. That
would change the marketplace quite considerably; measures such as that
can make a
difference. We
still have differences between the amount that people on low incomes
pay through prepayment or quarterly bills and what you get online and
with direct debit. That is where the argument for keeping the social
tariff comes in. The social tariff would mean, no matter how you pay,
that you would be paying the lowest charge. It means that, if you
happen to be one of the minority of fuel-poor lucky enough to be on
direct debit, the amount you would get back would be less than if you
were on a prepayment meter. It means that everybody who we have
recognised as needing support would get the cheapest deal from their
supplier.
The
Chairman: Paddy, do you have a supplementary
question?
Q
209Paddy
Tipping: Yes. A little while ago, you used the words
“Treasury coffers”. Is it not the case that winter fuel
payments last year cost £2.7 billion, and that only 12 per cent.
of people who receive them are in fuel poverty? Is that a sensible way
of going forward? Should we not use that money to support new mandatory
social
tariffs? Jonathan
Stearn: It is worth remembering the history of the
winter fuel payment, because I had some involvement. It started off as
a private Member’s Bill when I worked for Age Concern. We were
trying to give support to old people in the winter to give them
confidence to keep warm. The word “fuel” came into it,
but the idea of the winter payment was to give older people courage and
belief, and to get around the whole issue of the lack of take-up of
benefits. We knew that those with the greatest need were not claiming
the benefits that they were entitled to, and the universal winter
payment meant that we could give confidence to older people to keep
warm in the
winter. The
concern about losing the universal aspect of it and bringing it back to
means-testing is that those who need it most are inevitably going to be
the ones who miss out. In some ways you could look at it the other way
around, in terms of doing top-end means-testing where those on the
higher rate of tax, for example, do not get it or are not eligible.
There might be ways you could play that. Personally, however, I would
be very concerned about losing the universal nature. Its very
aim was to reach those older people who do not claim the benefits that
they are entitled to because of stigma, lack of knowledge and so on,
and they would lose out. That would be my
concern. On
the money left in the coffers, it is clear that, if we had an effective
take-up campaign, the Treasury would have to find the money, which is
in the region of £10 billion. In some ways, it is
worth thinking how that money could be used with these sorts of schemes
to give support where it is
needed. Jenny
Saunders: I agree. I do not think that we should
abolish winter fuel payments. There are certainly some people who are
not in fuel poverty who receive a high percentage, but it is a known
additional amount that people can rely on and they know that in
advance. In fact, we would like to see the eligibility extended.
Households that receive cold weather payments and families on low
incomes with young children should also receive it. We have been asking
for that for a long
time. We
used to have something called heating additions, which were abolished
in 1998. They provided around half a billion pounds’ worth of
assistance to people who were living in the worst housing. That was
linked to people’s different benefit payments and it went. I
think that what is in the Bill is an attempt to recognise that
pensioners on benefits need additional support and help. The energy
supply industry is one means of doing it, but that should not be at the
expense of giving public support as
well.
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